Fake It Until You Make It, I Once Heard a Scammer Say
I’ve been curious about the Theranos case for years. I still remember the day I saw Elisabeth Holmes in Forbes with a great speech but no facts, and I wondered “How is this possible?”, because you know, if engineers cannot understand how the things work, they cannot sleep either. Well, years later we discovered that it actually wasn’t. Now, after watching The Dropout, I’ve been more interested than ever in this case and these are my thoughts.
The story
Elizabeth Holmes founded Theranos when she was only 19 years old. She had a vision: with only a drop of blood, with no pain, run hundred of tests in a small and cheap device, that you could have at home. With that amazing idea she started the company, and during the next 15 years they raised more than $700 million dollars. Theranos was valued at $10 billion dollars (like 10 unicorns). The money was real. The product, fake.
The lessons
Now I’m gonna breaking down this incredible case and I’ll analyze each part of the story to see if Elizabeth is just and exception, a monster that we can blame and that’s all, or if the problem is deepper, and these kind of practices could be found anywhere, at anytime.
“Fake it till you make it”
Have you ever heard it in any of the companies that you has worked? How many times? I cannot answer the second one because I’ve lost count, and this is how the Theranos scam begins. They started to raise money from investors without a working product, they just faked it. Have you ever had to present a demo to the stakeholders, with some mocked parts of your product (if not the whole product) to meet a deadline? Does it sound familiar to you?. If so, did they know it?. I think in many cases, the answer is no. What you probably do in that case, is to make it work for the next time, but in the case of Theranos the complexity of the problem to solve was so high that they spent years without success.
The amazing team
It’s a well known thing that investors and venture capitalists value more the person or the team that is in charge of executing the idea, than the idea itself or even a working product. So this is the first bug of the system: the chances of success in the VC world are probably higher for a great seller than for a great engineer or scientist. Elizabeth Holmes, with no experience nor studies, promised to change the blood tests forever. However, experienced VCs of Silicon Valley bought it because her great speech and carisma.
But she is not probably the only one. Last years we saw a lot of startups rasing money with a promise that they finally couldn’t fulfill, and now most of them are having down-rounds. This happens because of multiple factors, but how are we sure that some of those founders are not just scammers?. What’s the thin edge between a visionary and an impostor? There is no clear answer, in fact, there is a lot of subjectivity in this point. 90% of startups won’t survive, and if investors would found an answer, that scary number could be different.
The wrapper
As for most of the companies, it was really hard for Theranos to meet its deadlines. They sold something they didn’t had (are you surprised about that? really?) and the customers started to push them to have a working product, or the contracts would be canceled. With no customers, investors are unhappy. If investors are unhappy, there is no money. Thus, this was the genesis of the next scam in the Theranos story: since they couldn’t make it work, they started to use a third party product. They bought some machines of Siemens, and they implemented this devices in their partners as if they were developed by Theranos. Now, thinking for a moment just in tech companies, how many business do you know that they are actually just a wrapper of a third party service? I could enumerate some “inventors" or entrepreneurs that what they are doing is to use the technology of big companies like Google, and they only have a custom and tiny front-end and a cool speech to sell it. And most of them are charging their customers for services that they could get for free. Are they also scammers? and this is getting worse when they claim to be inventors of some open-source technology that they just found out there.
You don’t play with health, Elizabeth
And here it is what I think destroyed Theranos. Is questionable but tolerable that a dating app fakes profiles, wasting your time swiping bots just to make you feel you have a lot of options, or a fintech with a tons of bugs says that your balance is zero when you have your savings there, or that amazing software which you think it uses artificial intelligence to give you better insights of something is in fact using plain SQL in an old-fashion database. As a lot of companies, you can also play with it, but you cannot tell the people they have cancer when they don’t, and this is what Theranos did. But the irony of this story, my dear friends, is that she was found guilty of defrauding investors, but not patients.
Conclusion
Elizabeth Holmes (CEO) and Ramesh Balwani (COO) are wating for the sentence, and they can spend 20 years in jail. I’m wondering if this case was exposed just because it was a HealthTech. What would be their destiny if they had decided to found a FinTech? or maybe a Blockchain startup?. Who knows. But when the system is telling you that you should always say “yes" and learn how to do it later, it seems like she, in a way, followed the steps by the book. Finally, I think we all are responsible of having a healthier and sustentable ecosystem. Regarding her future, after she paid her penalty, I can see Elizabeth as a Personal Branding gurú, because doing that, she’s a genius.